Why not combine cars, rockets, social media, satellites, AI and solar panels under one roof? In a widely-expected move, Elon Musk said (Tesla) and (SpaceX), the two companies he runs, have formed committees to discuss a merger. The latter company's results after the bell Tuesday are giving stock futures a lift. Tesla reports this afternoon.
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'It's a depression'
Whether it is new homes or existing ones, the U.S. housing market hasn't looked so anemic in years. That sounds bad for companies that build, sell or furnish residential property, but their shares are pricing that in already. Even a modest rebound could work wonders.
It is certainly ugly at the moment. On Tuesday pending home sales for September came in well below expectations at their lowest since the survey began in 2001. Builders of new homes are struggling mightily. Housing starts in September came in at just 1.22 million seasonally adjusted annualized units, one of the lowest figures since the pandemic recession.
An under-appreciated factor hurting them as much as high mortgage rates and inflation has been immigration raids. A September John Burns Research & Consulting Survey says two-thirds of builders reported labor force disruptions, up from 13% a year earlier.
The NAHB/Wells Fargo Housing Market Index, based on a survey of builders, fell to 29, its lowest since 2012. Prospective buyer traffic also hit the lowest since that year as high gas prices and mortgage rates thinned the ranks of house hunters.
"This is not just a contraction in residential real estate," wrote economist David Rosenberg. "It's a depression."
Ironically, good economic news hurts housing turnover too. Low unemployment and mortgage delinquencies keep distressed sales off the market. Meanwhile, low Covid-era borrowing rates have kept many homeowners from moving. (Goldman Sachs) estimates that more than 65% of borrowers locked-in mortgages at least two percentage points cheaper than today's levels.
Share prices of companies that build, renovate and outfit homes aren't pricing in a depression, but they do reflect serious pessimism. (Home Depot), for example, recently hit its lowest multiple of enterprise value to sales since 2018, except for the Covid panic. On the same measure, home builder (Lennar) is back to housing bust levels.
Miracles aren't imminent, but pent-up demand can keep activity from getting much worse. The longer it persists, the more potential it creates for a future boom.
In the past 15 years, housing starts have averaged almost 25% less than the 15 years before the housing bust when the U.S. population was lower. Estimates put the cumulative shortfall in the low millions of units for single-family residences.
Anything that loosens the logjam can have a big impact on home improvement in particular. According to a study from the NAHB, detached single-family home buyers spend about $8,700 more on things like furnishings, remodeling and appliances in the year after closing than people who didn't buy.
The rest of the economy looks strong on paper. Unless we all start living in data centers, something's gotta give.